The public opinion polls show that President Reagan is popular with American voters. Wall Street is another story. Reaganomics frightens the money market, and the result has been a collapse in equity prices that verges on panic. Markets abroad have plummeted in sympathy with the drop in New York.
Reaganomics, at least in its original form, is not even popular with Dr. Martin Feldstein, the President's own economic adviser. The ink was not dry on the official budget before Feldstein publicly criticized the adequacy of its tax and spending recommendations.
The secretary of the Treasury, Donald Regan, became annoyed with Feldstein's contemptuous denial of the Treasury's view that the large budget deficit would not raise interest rates - so annoyed that he lost his cool and told congressmen they should ''throw away'' the 1984 Economic Report of the Council of Economic Advisers. It is an open secret in Washington that Regan would like Reagan to send Feldstein back home to Harvard in disgrace.
Who is right? This is not a mere academic question. Nor is it a matter of concern only to Americans. Japanese, Italians, Brazilians, and Germans would like to know whether the standard economic textbooks have been shown to be out of date.
The old Reaganomics
When Ronald Reagan won his landslide electoral victory in 1980, a new crew of economists came into power preaching novel doctrines of supply-side economics. Keynesian liberals like me declared: Kemp-Lafferism just won't work.
Conventional conservative economists - such as Alan Greenspan, Herbert Stein, Arthur Burns, and Paul McCracken - made common cause with us liberals in warning that massive cuts in tax rates would entail a staggering structural deficit. They scoffed at the notion that America is on the far branch of the Laffer Curve , where lowered tax rates would raise higher tax receipts and produce budgetary surpluses.
Martin Feldstein is no Keynesian. He is a conservative, not a liberal. He dreams at night of ways to stimulate investment by removing tax distortions to incentives. He wants to let people keep whatever they earn, hoping to move from taxing people's income to taxing only what they spend on consumption. Social security, he thinks, should be financed like private pensions. In Feldstein's view, much of unemployment - certainly the unemployment one should worry about - would largely disappear if the welfare state did not make it comfortable and tolerable to be unemployed.
I have now examined the Feldstein Economic Report. I shall certainly not follow Regan's advice and throw it away, for it makes good sense. It deals with facts. It weighs logical arguments, and reviews the broad evidence bearing on the Regan-Feldstein-Kemp debates.
Academics will award the new Economic Report an ''A.'' It provides a strong critique against the old Reaganomics. Let us hope there will emerge a new and better Reaganomics.
High interest rates and dollar overvaluation
Reagan's structural deficit represents public thriftlessness. His post-1980 programs have produced no compensatory increase in private family thriftiness. The result is higher real interest rates, and if Mr. Regan cannot understand this, he does not deserve to be taken back at Merrill Lynch when his Washington tour of duty is over.
There is a further boost to interest rates from the fact that the Reagan tax cuts for business are beginning to stimulate new investment programs. Were it not for the flood of foreign investment into the United States - which crowds out investment abroad - the interest rate here would be forced further upward by the Reagan deficit, in order to crowd out our investment and ensure that Reagan could finance his gusher of government bonds.
Reagan's high interest rates and expensive dollar make it hard to sell Caterpillar tractors abroad, or Iowa corn, or tourist trips to Niagara Falls and the Grand Canyon. But sales to us by Japanese and Germans are made all the easier by rash Reagan finance.
Wrong fear of deficits
Why not an ''A+'' to Dr. Feldstein and Federal Reserve governor Paul Volcker?
Their error, and Wall Street's error, too, is to believe that the awful structural deficit must cut the boom short and soon lead to uncontrolled inflation. Feldstein knows better. He knows that what is bad about the structural deficit is that it biases the economy toward less investment and more consumption. But he and Paul Volcker also realize the hard fact of politics that the only way to scare voters and the Prince into action is to threaten them with a great depression or a great inflation, or with both.
Well, an ''A'' is a better grade than the ''D'' that the President has earned.
The world stirs
In the meantime the US recovery rolls along and is helping economies abroad. By now such monetarists as Milton Friedman and Karl Brunner must be regretting their predictions of an American collapse before mid-1984. Every wiggle in the growth rate of the money supply sends monetarists into hysteria, to the amusement of the rest of the profession.
I have just reviewed 40 forecasts issued by bank, corporation, university, and government economists. They cluster around a projection of 4 to 5 percent growth in real gross national product in the 4 quarters of 1984.
Are the new Federal Reserve targets for money growth consistent with such health in the economy? The consensus forecasters think so.
I agree. But I warn the Reserve authorities to remain alert to the possibility that it may become prudent policy to revise the targets if economic surprises were to occur.